The opinion of the court was delivered by: Judge Caputo
Presently before the Court are two competing Motions for Summary Judgment between Defendant/Counterclaim Plaintiff DLJ and Plaintiff/Counterclaim Defendant United States. (Docs. 69 and 72). Also before the Court is a Motion for Summary Judgment by the United States against Defendant Perry Crissman. (Doc. 52). As Defendant Perry Crissman has failed to timely oppose that Motion, it will be granted. While the Court finds the United States's tax liens take priority over the alleged purchase money mortgage, issues remain as to the Stipulation between the parties and full summary judgment in favor of either party will not be granted.
This action concerns two competing claims to the proceeds of real property ("Property") loacted at 110 Piccadilly Road in Port Matilda, Pennsylvania. The Property is held in the names of Defendant Ellery Crissman and Defendant Penny L. Crissman (collectively, the "Crissman Defendants"). On September 29, 2009, the United States of America ("United States") filed suit against the Crissman Defendants, DLJ Mortgage Capital, Inc. ("DLJ"), and other financial institutions that it deemed may have an interest in the Property. (Doc. 1). The civil action was brought by the United States "for the purpose of (a) reducing to judgment federal tax assessments against Defendants Ellery A. Crissman, II, and Penny L. Crissman; and (b) foreclosing federal tax liens upon certain real property and requesting that this Court order the sale of such real property from which proceeds may satisfy the Plaintiff's liens." (Doc. 1 at 2).
The instant motions concern only Defendant/Counterclaim Plaintiff DLJ and Plaintiff/Counterclaim Defendant United States. All other Defendant financial institutions have either been dismissed or have stipulated their claims subordinate to that of the United States. (Docs. 28, 29, 30, 47). The validity of the liens or their foreclosure is not at issue. Default judgment on tax liability was entered against Defendant Ellery Crissman (Doc. 51), and the United States has made a Motion for Summary Judgment against Defendant Penny L. Crissman which she has not opposed. (Doc. 52).
On March 8, 1997, the Crissman Defendants opted into an installment agreement to purchase the Property. However, a foreclosure action by IMC Mortgage Company (IMC) against the original owner caused the Property to be sold at a Sheriff's Sale on August 29, 2000. IMC was the successful buyer with a bid of $36,050.00. IMC assigned its successful bid to Defendant Ellery Crissman for $389,000.
The Crissman Defendants obtained title to the Property on August 29, 2000. On August 30, 2000, Defendant Ellery Crissman executed a mortgage on the Property with People's Choice Home Loans, Inc. ("People's Choice") for $419,200 (the "DLJ Mortgage"). Due to a dispute with the Centre County Sheriff, the Deed was ultimately recorded on January 18, 2002. (Doc. 70 at ¶ 26). The mortgage was recorded with the Centre County Record of Deeds Office on June 28, 2002. (Doc. 70 at ¶ 16).
The U.S. Department of Housing and Urban Development Settlement Statement ("HUD-1") indicates that Defendant Ellery Crissman paid a total of $524,000 for the property. (Doc. 70-12 at 2, Ex. 12). The document also reflects that $389,000 went towards the payoff of the IMC mortgage. (Doc. 70-12 at 2, Ex. 12). DLJ maintains that the loan was a purchase money mortgage, executed in order to "enable the Crissman Defendants to purchase the property." (Doc. 70 at ¶ 15). The United States argues that there is no evidence that the proceeds of the mortgage were actually used to pay for the property. (Doc. 76 at 8).
DLJ is the current holder of the DLJ Mortgage due to an assignment between People's Choice and DLJ dated May 14, 2008. (Doc. 70 at ¶ 27). The Crissman Defendants have since defaulted on the DLJ Mortgage.
The United States avers that the Secretary of the Treasury has properly assessed federal income taxes against the Crissman Defendants*fn1 as follows: Year Ending Assessment Date Lien Recorded December 31, 1996 July 13, 1998 October 13, 2000 December 31, 1997 November 23, 1998 October 13, 2000 December 31, 1998 June 19, 2000 October 13, 2000 December 31, 1999 October 29, 2001 February 25, 2002 (Doc. 73 at ¶ 4). The Internal Revenue Service ("IRS") filed notices with the Prothonotary of the Centre County Court of Common Pleas regarding these assessments on the above-noted dates, included three additional notices in 2003, 2005 and 2007 regarding later assessments. (Doc. 73 at ¶ 4-5). None of these tax assessments have been satisfied.
As a result of the default on the DLJ Mortgage and competing federal tax liens, DLJ filed a civil foreclosure action against the Crissman Defendants and the United States in the Centre County Court of Common Pleas on November 1, 2007. (Doc. 73 at ¶ 12). At that time, the United States had "at least seven notices" of federal tax liens filed in Centre County against the Crissman Defendants. (Doc. 73 at ¶ 14).
In a letter dated December 10, 2007, an attorney retained by DLJ made a demand against DLJ's title insurer for coverage based on the three contested federal tax liens. (Doc. 72-6 at 3-4, Ex. 113). That letter disclosed that they had "discovered a cloud on title" and that "there were [three] IRS liens which were recorded and now take priority over this mortgage." (Doc. 72-6 at 2, Ex. 113). These three liens are apparently in reference to the three tax assessments preceding the August 30, 2000 mortgage.
On December 26, 2007, Plaintiff DLJ Mortgage Capital, Inc. and Defendant United States entered into a "Judgment by Stipulation" in reference to the above November 1 foreclosure action. In relevant part, that Stipulation provided:
That the federal lien(s) referred to in Plaintiff's Complaint in Mortgage Foreclosure is junior in time to Plaintiff's mortgage, that being dated August 30, 2000 and recorded on June 28, 2002 at Mortgage Book/Volume 1380, Page 201 in the Centre County Recorder of Deed's Office. (Document 70-15 at 3, Ex. 15).
However, even following the Stipulation, DLJ continued to demand coverage from their title insurer, ultimately culminating in an action against the insurer. There is no evidence that the Stipulation was ever raised in that action. Additionally, DLJ applied to the IRS for a discharge of the tax liens. (Doc. 72-18, Ex. 130). The discharge application referred to and contained copies of the same federal tax lien documents as filed with the Judgment by Stipulation. (Doc. 72-18 at 9-18, Ex. 130). Notably, the application states that the foreclosure "cannot be prosecuted until the priority of the above-referenced Federal Tax Liens vis-a-vis the DLJ Mortgage is resolved." (Id. at ¶ 260). The application was denied by the IRS.
The Parties' arguments essentially boil down to: (1) whether DLJ holds a valid purchase money mortgage against other potential creditors; (2) if so, whether such a purchase money mortgage has priority over federal tax liens; and (3) whether the Judgment by Stipulation is controlling in the instant case.
Both motions for summary judgment have been fully briefed and are ripe for review. As such, the Court will address each in turn.
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). A fact is material if proof of its existence or nonexistence might affect the outcome of the suit under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Where there is no material fact in dispute, the moving party need only establish that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c)(2). Where, however, there is a disputed issue of material fact, summary judgment is appropriate only if the factual dispute is not a genuine one. Anderson, 477 U.S. at 248. An issue of material fact is genuine if "a reasonable jury could return a verdict for the nonmoving party." Id. Where there is a material fact in dispute, the moving party has the initial burden of proving that: (1) there is no genuine issue of material fact; and (2) the moving party is entitled to judgment as a matter of law. See 2D Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2727 (2d ed. 1983). The moving party may present its own evidence or, where the nonmoving party has the burden of proof, simply point out to the court that "the nonmoving party has failed to make a sufficient showing on an essential element of her case." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party, and the entire record must be examined in the light most favorable to the nonmoving party. White v. Westinghouse Elec. Co., 862 F.2d 56, 59 (3d Cir. 1988). Once the moving party has satisfied its initial burden, the burden shifts to the non-moving party to either present affirmative evidence supporting its version of the material facts or to refute the moving party's contention that the facts entitle it to judgment as a matter of law. Anderson, 477 U.S. at 256--57. The Court need not accept mere conclusory allegations, whether they are made in the complaint or a sworn statement. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990).
"To prevail on a motion for summary judgment, the non-moving party must show specific facts such that a reasonable jury could find in that party's favor, thereby establishing a genuine issue of fact for trial." Galli v. New Jersey Meadowlands Comm'n, 490 F.3d 265, 270 (3d Cir. 2007) (citing Fed. R. Civ. P. 56(e)). "While the evidence that the non-moving party presents may be either direct or circumstantial, and need not be as great as a preponderance, the evidence must be more than a scintilla." Id. (quoting Hugh v. Butler County Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005)). In deciding a motion for summary judgment, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249.
B. Validity of the Purchase ...